TOPIC 6

AUDIT & ACCOUNTABILITY

PART 1

AUDITING
 LECTURE’S OBJECTIVES
• After completion of this chapter, students
should be able to:
– Define and explain the role of audit
– Discuss the different types of audit in
government
– Explain the terms of appointment and
resignation of the Auditor General
– Discuss the nature of conducting government
auditing
– Explain the preparation process of the Audit
Report
 WHAT IS AN AUDIT?
• The process by which a competent,
independent person accumulates and
evaluates evidence about quantifiable
information related to a specific economic
entity for the purpose of determining and
reporting on the degree of correspondence
between quantifiable information and
established criteria
Arens et al. (1999)
 WHAT IS AN AUDIT?
• A systematic process of objectively
obtaining and evaluating evidence
regarding assertions about economic
actions and events to ascertain the degree
of correspondence between those
assertions and established criteria and
communicating the results to interested
users
The Report of the Committee on Basic Auditing Concepts of the
American Accounting Association
 PURPOSE OF AUDIT IN THE
PUBLIC SECTOR
• To determine any embezzlement from the
estimation being planned
• To declare any wrongdoings in relation to
the principles, orders, rules and
regulations
• To declare the elements and factors which
fail to lead for effectiveness, efficiency and
economical utilisation of the government’s
resources
 TYPES OF AUDITS
• Internal audit
• External audit
– Financial Audit
– Compliance Audit
– Performance Audit
 TYPES OF AUDITS
• Financial Audit
– Attestation audit
– To determine whether the annual financial
statement shows a true and fair view of the
financial position and whether the government
entity has complied with all legal and
regulatory requirements
– Involves obtaining and evaluating of the
evidence of an organisation’s financial reports
– Carried out annually
 TYPES OF AUDITS
• Compliance Audit
– To inspect and evaluate the activities of
ministries/departments or agencies
– To determine whether laws and regulations
are fully complied
– Involves the function of obtaining and
evaluating evidence and determining whether
certain financial or operating activities
conform to specified conditions
– Conduct cyclically
 TYPES OF AUDITS
• Performance Audit
– Involves studies and evaluation of specified
programmes or activities
– To determine whether the objectives of the
programmes or activities are achieved, and
whether the implementation is carried out in
an economical, efficient and effective manner
– To assure that the budget amount applied and
approved has been fully utilised
 TYPES OF AUDITS
TYPE OF AUDIT NATURE OF ESTABLISHED NATURE OF
ASSERTIONS CRITERIA AUDITOR’S
REPORT
FINANCIAL Entity’s financial An identified Opinion on
report data financial reporting fairness or ‘truth
framework and fairness’
COMPLIANCE Implicit claim that Management’s Summary of
data adhere to policies, laws, findings or
relevant regulations or assurance
other third party regarding degree
requirements of compliance
PERFORMANCE Performance or Objective set. i.e. Economy,
operational data by management efficiency, and
or enabling effectiveness
legislation observed
 GOVERNMENT AUDIT
FRAMEWORK
FINANCIAL
STATEMENT
• EVENTS
• ACTIVITIES
• TRANSACTIONS - AUDIT - REVISION
PROCESS
- AUDIT - SUGGESTION
STANDARDS

• AUDIT
REPORT
 NATIONAL AUDIT
DEPARTMENT

HTTP://WWW.AUDIT.GOV.MY/
 INTRODUCTION

• The Audit Institutions in Malaya has been established during the

British Colonial administration in the early 20th Century to strengthen
the Government financial management system.
• A more organised National Audit Institution in respect of the
structure and audit scope could be traced back to 1906 when the
Auditor General of the Federated Malay States, W.J.P Hume was
appointed
• The appointment as well as the responsibilities of the Auditor
General are spelt out under Article 105 of the Federal Constitution
and the Audit Act 1957.
• The Audit Act 1957 is the main act that provides the provisions for
the audit of Malaysian public sectors

•
 VISION & MISSION
VISION

To Be Recognised As A Key Contributor Towards Financial

Management Excellence And Enhances By The Year 2020.

MISSION

To Carry Out Audit In A Professional And Independent Manner And To

Produce Balanced Report To The Parliament And State Legislatures
Towards Enhancing Good Governance In The Public Sector.
 OBJECTIVES
• To prepare quality and timely Audit Reports to
Parliament and State Legislatures
• To carry out audit activities and prepare reports
in an independent and balanced manner
• To fulfil the needs and expectations of
stakeholders and auditees
• To manage audit activities efficiently and
effectively
• To be a model employer
•
 AUDIT ACT 1957
• An Act to make provision for the audit of
the accounts of the Federation, of the
States and of certain other authorities &
specified bodies

17
 Audit Act, 1957 –
Section 1-10

1. Term & conditions of service of AG

2. Remuneration of AG
3. Duties of AG
4. Nature of Audit
5. Powers of AG
6. Secrecy
7. Audit Report.

Refer to: www.audit.gov.my

18
 Section 1 - Act Coverage
• apply to the audit of the accounts of the
Federation, of the States and other public
authorities and specified bodies

19
 Section 2 - Interpretation
• “public moneys” shall include moneys
received by or on account of any public
authority established under Federal or
State law and the expression:
• “public stores” to include chattels the
property of or in the possession or under
the control of any such authority.

20
Section 3 - Terms & Conditions
of Service of Auditor General

• the Auditor General shall be deemed to

be an officer of the general public
service of the Federation.
• thus whatever laws currently in force to
the public service shall apply to him.

21
 Section 4 - Remuneration of
Auditor General

• as specified under first and second

schedule of the Act.
• shall be charged on the Consolidated
Fund.

22
 Section 5 - Duties of Auditor
General
• to examine, enquire into & audit:
– accounts of accounting officers of Federal &
States;
– accounts of any separate fund established in
the State (for zakat, fitrah & baitulmal).

23
 Section 5 - Duties of Auditor
General (cont’)
• accounts of any other public authority or
body;
• accounts of any other body (including
companies) in receipt of grant or loan from
the government; for a company with half of
its paid up share capital held by
government.

24
 Section 5 - Duties of Auditor
General (cont’)
• accounts of any other public authority with
public interest.
• audit fees shall be determined by Treasury
in consultation with the Auditor-General.

25
 Section 6 - Nature of Audit
• The Auditor General may examine to ascertain:
– whether all reasonable precautions have been taken
to safeguard the collection & custody of public
moneys;
– whether issues & collection of public moneys were
made in accordance with proper authority & payments
were properly chargeable & are supported by
sufficient vouchers or proof of payment;

26
 Section 6 - Nature of Audit
(cont’)
– whether due care has been taken to account
for & to ensure proper use, control,
maintenance & disposal of all public stores or
other stores subject to his audit;
– whether all accounts & other records have
been & are properly & faithfully maintained;
– whether moneys have been applied according
to appropriation or authority;
– whether every thing comply with relevant
rules

27
 Section 7 - Powers of the
Auditor General
• may call any person for any explanation or
information;
• may search any book, documents or
records in any public office;
• to have access to all records, books,
vouchers, documents, cash or other
property subject to his audit;
• may examine any person necessary for the
due performance of his functions;

28
 Section 7 - Powers of the
Auditor General (cont’)
• may authorize any public officer to conduct
any inquiry, examination or audit;
• may obtain advice of law officer upon any
question of law.
• Any of those powers may be exercised by
a public officer authorized by the Auditor
General;

29
 Section 7 - Powers of the
Auditor General (cont’)
• the Auditor General may authorize any
person he deems competent to conduct on
his behalf;
• Every person called upon for any
explanation shall be legally bound to
furnish such explanation or information.

30
 Section 8 - Secrecy
• Neither the Auditor-General nor any other
person shall divulge or communicate,
except in the course of duty to another
person performing duties under this Act
any information which has come to his
knowledge.

31
 Section 9 - Audit Reports
• As required by Section 16 of the Financial
Procedure Act 1957, accounts of the
government have to be prepared &
transmitted to the Auditor General for his
examination, audit & prepare reports
thereon.;
• if statement is not received seven months
after the close of the financial year, the
Auditor General may submit report to
Parliament/State Legislative Assembly.
32
Section 9 - Audit Reports (cont’)
• the Auditor General will submit a report
based on the accounts of the
Federal/State to the Minister/Chief
Minister.
• If any serious irregularities have occurred,
he shall immediately bring the matter to
the notice of the Secretary General to the
Treasury/State financial authority;

33
Section 9 - Audit Reports (cont’)
• Auditor General may make
recommendation & comment upon all
matters relating to public accounts, public
moneys & stores

Topic 5 34
Section 9 - Audit Reports (cont’)
• Auditor General may submit a certificate &
observations on special funds such as the
Zakat, Fitrah and Baitulmal.
• Auditor General may present his certificate
& observation upon those accounts to the
heads of those authorities on any matter
which in his opinion requires immediate
attention.

35
 Section 10 - Regulations
• the Minister may after consulting the
National Finance Council may make such
regulation not inconsistent with this Act as
are necessary for the purposes of the Act.

36
THE AUDITOR GENERAL (AG)
• TERMS & CONDITIONS
– The AG is an officer of the general public
service of the Federation
– Appointed by the YDPA on the advice of PM
– Eligible for reappointment but NOT for any
other appointment in the service
– AG may at any time resign, but shall not
removed from the office EXCEPT in the
grounds an manners of removing a judge
RESPONSIBILITIES & DUTIES
• The AG has the powers and duties to audit
and report on the accounts of the Federal
and States (Art 106, FC)
• The AG may also perform other duties in
relation to the accounts of the Federal,
States and public authorities, as specified
by the YDPA
• The AG is responsible to enhance the
standard of public accountability by
reporting and providing an assurance
RESPONSIBILITIES & DUTIES
• Section 591) of the Audit Act 1957:
– The AG shall examine, inquire and audit:
• The accounts of the Federation and States
• The accounts of any separate fund established in a State or
Federal Territory under Art 97(3) of FC
• The accounts of any public authority or body so provided by
law, and if it is not provided by the law, at the request of that
authority with the consent of MOF to be notified in the
Gazette
• The accounts of any other body including a company
registered under the Companies’ Ac; in receipt of public grant
or loan or a company that half of its paid up capital held by
the Government
• The accounts of any other public authority, upon the request
by the MOF in the interest of the public
NATURE & SCOPE OF WORK
• To ascertaining and ensuring whether:
– All reasonable precautions have been taken
to safeguard the collection and custody of
public money
– Payments were made in accordance with
proper authority, properly charged and
supported by sufficient vouchers/proof of
payments
– Due care has been taken into account to
ensure proper use, control, maintenance and
disposal of public stores
 NATURE & SCOPE OF WORK
• To ascertaining and ensuring whether:
– All accounts and other records have been and are
properly and faithfully maintained
– Moneys have been applied accordingly, for which
they were appropriated or authorised and the related
activities have been managed in an efficient manner
with due regards for economy and avoidance of
waste or extravagance
– The provisions of the FC and the FPA 1957 and any
other written law have been complied with
 POWERS OF THE AG

• The AG has the power to call upon any person

for explanation and information
• The AG has the access to all records, vouchers,
documents, cash, stamps, securities, and
properties subject to his audit
• The AG may delegate his powers by authorising
any person he deems competent
• The AG may obtain the advice of law office upon
any legal matters
 AUDIT REPORT
• The reports of the AG are to be submitted to the
YDPA and to be laid before Parliament, on the
advice of the PM
• The audit report on the accounts of the State
and other public authorities are to be submitted
to the State Ruler or YDP Negeri and to be laid
before the Legislative Assembly
• The AG nay also from time to time submit a
report to the YDPA or the Ruler of the State
upon urgent matters arising in the course of
discharging his duties
 PUBLIC ACCOUNTS
COMMITTEE (PAC)
• One of the parliamentary committee with the
responsibility of being the parliamentary
watchdog over public monies
• Appointed by the house of representatives at the
earliest possible time after the beginning of each
parliament session
• Comprises between 6-12 members; drawn from
major parties represented in parliament
 PUBLIC ACCOUNTS
COMMITTEE (PAC)
• The standing order 77(5) of the Standing
Ordinance provides the PAC with the power to
look into the following:
– The accounts of the Federation and the appropriation of the
sums granted by Parliament to meet public expenditure
– Such accounts of public authorities and other bodies
administering public fund as may be laid before the parliament
– Reports of the Auditor General laid before the Parliament in
accordance with Article 107 of the FC
– Such other matters as the committee may think fit or which may
be referred to the committee by the Parliament
 PUBLIC ACCOUNTS
COMMITTEE (PAC)
• The main objective of PAC is to ensure that
there is a proper accountability of funds by
public officials
• Responsible to examine the Auditor’s report
pertaining to whether the expenditures overrun
the authorised limit and whether moneys
appropriated are not spent in accordance with
approved rules and regulations
• Also responsible to examine whether the ‘value
of money’ is being obtained in the government’s
spending
 PUBLIC ACCOUNTS
COMMITTEE (PAC)
• Functions of PAC
– To ensure that the moneys spent are in accordance
with the purposes and programmes as in the
approved budget
– To monitor that public officials exercise the spending
money in the most effective and efficient manner; and
– To maintain high standards of public accountability in
all matters
 AUDIT AND IT
• ‘Information age government’
• Since 2000, an audit management system known as
eSPP has been developed to facilitate the improvement
of the audit management process
• Government auditors should improve and update their
functions to cater the demands of the era of technology
– Security risks, controls and standards
– Support and encourage worthwhile changes
– Understand the objectives and practical implication of
the improved info system
 PART 2

ACCOUNTABILITY
 WHAT IS ACCOUNTABILITY?
• The liability to give account for something
to somebody or the responsibility to give a
formal statement of money dealing
Chamber’s Dictionary

• The acceptance of responsibility for

actions and decisions
Lim, A. (1987)

• A relationship based on the obligation to

demonstrate and take responsibility for
performance in like of agreed expectation
Office of Auditor General of Canada
 GOVERNMENT
ACCOUNTABILITY
• The duty of public officials to report their
actions to the citizens and the rights of the
citizens to take actions against those
officials, whose conduct the citizens
consider unsatisfactory
Tocqueville (2000)
 OBJECTIVES OF
ACCOUNTABILITY
• To create an effective control o ensure
management of public moneys is in accordance
with applicable laws and regulations.
• To set up an effective system for public officials
to execute the responsibilities entrusted to them.
• To utilise public money in accordance with
ayuthorised purposes and relevant activities are
carried out in an orderly and efficient manner
without any wastage
INDICATORS FOR EFFECTIVE
ACCOUNTABILITY
• Clarity of roles and responsibilities
• Clarity of performance and expectations
• Balanced of expectations and capacities
• Credibility of reporting
• Reasonableness of review and
adjustments
TYPES OF ACCOUNTABILITY
• FINANCIAL ACCOUNTABILITY
– The responsibility of government personnel to
comply with all laws, rules and regulations
– To ensure that the accounts maintained are in
an orderly manner and with integrity in
accordance with the applicable laws and
regulations
TYPES OF ACCOUNTABILITY
• PROGRAMME ACCOUNTABILITY
– The responsibility of government personnel to
ensure that the objectives of the individual
programme and activity of government
organisations are achieved
– All initial plans of programmes and activities
stated in the annual budget will have to be
implemented accordingly
– Each agency is bound to implement all the
plans identified in their Programme
Agreement under their budgeting process
TYPES OF ACCOUNTABILITY
• MANAGEMENT ACCOUNTABILITY
– The responsibility of the government
organisations in ensuring effective, efficient
and economic utilisation of government
resources under their control
– Budget as management tool
– Various statements and report will be
prepared to measure the level of
accountability achieved
 ACCOUNTABILITY
FRAMEWORK

BUDGETING ACCOUNTING AUDITING

 ACCOUNTABILITY INDEX
RATING
• Beginning 2007, the National Audit Department implemented the Audit
Rating System based on Accountability Index (AI).
• The objective of AI is to assess the extent of financial management of
Ministries, Departments, Statutory Bodies, Local Authorities and Islamic
Religious Councils in adhering to the government financial laws and
regulations.
• The financial management assessment encompasses the following
elements:
– i. Organisational Management Control
ii. Budgetary Control
iii. Receipts Control
iv. Expenditure Control
v. Management of Trust Funds, Trust Accounts and Deposits
vi. Management of Assets and Inventories
vii. Management of Investments
viii. Management of Loans
ix. Financial Statement
 ACCOUNTABILITY INDEX
RATING
• AI is implemented into two categories: mandatory and rotational.
• Mandatory category means AI on the entities will be conducted every year whilsts
rotational category means AI will be conducted once in every three years.
• In 2007, for Mandatory Category the AI was conducted on the following federal and
state agencies:

• Federal Sector
• All 28 ministries (now 27 ministries)
• 4 main revenue collecting departments i.e Customs Department, Immigration
Department, Road Transports Department and the Royal Malaysian Police.
•

• State Sector
• State Treasury - 13
• State Islamic Religious Councils - 13
• State Economic Development Corporations - 13
 ACCOUNTABILITY INDEX
RATING
• For the Rotational Category, the number of agencies involved were
as follows:-
– Federal Sector
• Federal Departments 31
• Federal Statutory
Bodies 26
– State Sector
• State Ministries/Departments 62
• State Statutory
Bodies 4
• Local Authorities 22
CHAIN OF ACCOUNTABILITY PROCESS IN MALAYSIA
 PROBLEMS TO ACHIEVE
ACCOUNTBILITY
• No real directive or guidelines on the new
system introduced
• Insufficient post created in enhancing
better accountability
• Failure of internal control system
• Resistance to change
• Failure to recognise relationship between
business processes and records
• Lack of top management support
 RECOMMENDATION TO
IMPROVE ACCOUNTABILITY
• Disciplinary actions to staffs who failed to
perform tasks
• Create sufficient post
• Set up audit committee
• Cooperation from other parties
• Continuous revision of policies and
circulars
• Effective recording system
 IT SUPPORTS
ACCOUNTABILITY
• Larger productivity gains in government
service
• Greater transparency and accountability
• Improved reporting of expenditure
• More updated and accurate information
• Fostering national competitiveness
• Reduced cost
• Enhance the deployment and use of public
resources
 IT SUPPORTS
ACCOUNTABILITY
• Standard Accounting System for
Government (SAGA)
• State Government Computerized
Accounting Systems (SPEKS)
• Micro Accounting System (MAS)
• Government Financial and Management
Accounting System (GFMAS)
• Electronic Budget Planning and Control
System (eSPKB)
 AUDIT SUPPORTS
ACCOUNTABILITY
• Prosser (1995): part of auditing could give comments on
the government’s accountability for provincial debt,
internal control, and other aspects of systems and
procedures that assist the government in its operations
and financial accountability
• Audit practitioners should engage in the development of
new accountability mechanisms that would support the
decision-making process in public sector
• Auditor also play some role in developing and
administering the public policy and accountability-
reporting frameworks